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real estate there is question in answer templet. two attachment is for information Topic 1: Introduction to real estate © 2021 Kaplan Educat

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real estate there is question in answer templet.

two attachment is for information Topic 1: Introduction to real estate

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Topic 1: Introduction to real estate

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Industry Fundamentals NSW

Contents

Overview …………………………………………………………………………………………….. 1.2

Topic learning outcomes ……………………………………………………………………………….. 1.3

Glossary of terms ………………………………………………………………………………….. 1.4

1 Agency function ………………………………………………………………………….. 1.4

1.1 The agency-principal relationship ………………………………………………………… 1.4

1.2 Fiduciary obligations ………………………………………………………………………….. 1.5

1.3 Contractual obligations of an agent ……………………………………………………… 1.6

1.4 Types of real estate licences ……………………………………………………………….. 1.6

1.5 Property services offered by agents …………………………………………………….. 1.7

2 Real estate business ownership and organisational structure ……………… 1.8

2.2 Types of business entity ……………………………………………………………………… 1.8

2.2 Business style of agency ……………………………………………………………………. 1.11

3 Job roles and responsibilities of key agency staff …………………………….. 1.13

3.1 Roles and responsibilities of key staff …………………………………………………. 1.13

3.2 Organisational structure …………………………………………………………………… 1.14

3.3 Relationship between licensee and agent representative……………………… 1.15

Key points ………………………………………………………………………………………….. 1.15

References …………………………………………………………………………………………. 1.16

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Overview
The term ‘Estate agent’ is defined in the Macquarie dictionary as:

‘One who acts as an intermediary between the buyer and seller of
properties, houses, etc.’

(Macquarie dictionary)

The Real Estate Institute of Australia’s glossary of terms defines an agent as:

‘A person authorised to act for another (usually for the owner) in the selling,
buying, renting or management of a property. Commonly used to refer to
licensed real estate agents and real estate representatives.’

(The Real Estate Institute of Australia (REIA))

In every state and territory in Australia, the role of the real estate agent is a licensed
occupation regulated by the state government department responsible for enforcing
the relevant agent legislation and regulating the conduct of agents. This means a person
who works as a real estate agent cannot do so without meeting the set criteria and
educational requirements to obtain the appropriate Certificate of Registration and/or
Licence with the relevant state department.

Laws affecting the role and responsibility of the real estate agent differ slightly in each
state and territory throughout Australia. There may be a general perception that real
estate agents only sell homes; however, their role is much broader, and may include:
• selling
• leasing
• managing
• buying

of:
• residential property
• rural property
• commercial property
• retail (a specialist sub-category of commercial) property
• industrial property
• businesses.

Some real estate agencies offer a broad range of these services, whilst others may
specialise in only one. Agencies may differ in their size, company structure and of course
branding, but many are classified under the Australian Bureau of Statistics publication
guidelines as small businesses (that is, businesses employing less than 20 staff).
All agents, businesses and their employees are currently governed by state or territory
legislation administered by a statutory body within that state or territory.

The real estate industry is a common career choice for those who have a passion for
dealing with a variety of people, whilst providing services in the dynamic property
sector. It offers the opportunity of significant financial reward for those with an
outstanding work and service ethic.

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It can also be seen as a glamorous industry in which image is important. However,
personal presentation is just a start. A real estate agent needs to be professional,
up-to-date with current legislation, and compliant with their agency’s policies and
procedures. Working in real estate may mean working extended hours and compete
for clients’ business whilst remembering it is the client’s best interest to always
keep paramount.

The real estate industry can be an unpredictable industry at times. It reflects changes
and fluctuations in the economy and government policy, thus progressing in a series of
waves of activity, which can influence both income and job opportunities.

As can be seen from the above, and throughout the topics in this subject, a career as a
real estate agent can certainly be exciting, rewarding and challenging!

Topic learning outcomes
On completing this topic, students should be able to:
• explain the services offered by real estate agents
• identify parties to real estate transactions
• identify and explain the agency-principal relationship
• research and record forms of real estate business ownership and

organisational structures
• research and record the roles and responsibilities of key personnel in real estate,

including agency principals (licensee in charge).

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Glossary of terms
In real estate, there are many industry specific terms. These terms and definitions are
available on the Real Estate Institute of Australia’s Glossary of Terms.

Some of the terms differ from state to state. For example, ‘owner’, ‘landlord’ and
‘lessor’ are all terms used to mean the same thing; a property owner who leases their
property to a tenant. For consistency, this subject uses the following terms: ‘seller’,
‘buyer’, ‘landlord’, and ‘tenant’.

1 Agency function

1.1 The agency-principal relationship
The role of an agent is to:
• act on behalf of a client (known as the principal)
• to locate an appropriate third party to engage in a legal relationship with the

principal concerning a property.

Please note that the word ‘principal’ is sometimes used in three different ways within
the industry:
1. The client — the person or party who engages the agent to act for them and who

pays the agent for their services.
2. The owner or licensee of a real estate business.
3. The original amount of a loan before interest is added (as in ‘principal and interest’).

When talking about the agency-principal relationship, it is using the term ‘principal’ in its
first meaning, as shown above.

Example: Agency-principal relationships

Examples of agency-principal relationships include:
• An agent acting for a seller (the principal) finds a buyer for the property

who enters into a contract to purchase
• An agent acting for the landlord owner (the principal) finds a tenant to

enter into a contract to lease the property
• An agent acting for a buyer (the principal) finds a suitable property for

them to purchase and negotiates with the seller.

The ‘agency’ is created by a written contractual agreement between the principal and
agent to perform a service or services and carry out duties, responsibilities and
obligations of an agent for a fee.

To be able to claim a fee for this service, the agent must have a contractual agreement
with the principal. This is known variously as an ‘agency agreement’, ‘agency authority’
or ‘appointment to act’ and is the written authority that provides an agent with the legal
right to claim a fee for the service they provide to their principal. Without this written
agreement, an agent cannot claim any fees, commissions or expenses involved in the
transaction as these must be specified in the agreement.

Glossary of Terms

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Under the terms of the agency agreement, the agent acts as the intermediary between
the following parties (brackets indicate who the parties would be in each example):
• Sales: Principal (the seller) > agent > third party (buyer)
• Property manager: Principal (the landlord) > agent > third party (tenant)
• Buyer agents: Principal (the buyer) > agent > third party (seller).

As a result of the written agreement under which the agent is appointed to act, there
are common law duties, such as fiduciary obligations, as well as statutory duties that are
placed on the agent. These are explained in the following sections.

1.2 Fiduciary obligations
The agency relationship with the client is legally known as a fiduciary relationship.
An agent has fiduciary obligations under both common law and statute law
(explained further in Topic 2: Legislation in real estate). These can be defined as
obligations of trust, responsibility and confidence in their relationship with the principal
(client). The agent must be loyal and act in the principal’s (i.e. client’s) best interest at all
times, by always placing the principal’s interest above the agent’s. The fiduciary and
contractual obligations of an agent include:
• complying with the principal’s instructions as outlined in the agency agreement or

appointment to act. The extent of the agent’s authority is specified in this document,
and an agent must only act within this authority

• acting in the principal’s best interest, that is, treating the principal’s property and
money both as if it were the agent’s own, but also within the boundaries set by
legislation

• exercising due care, skill and diligence when carrying out duties
• keeping the principal’s money separate from the agent’s
• keeping client information confidential
• not engaging in a conflict of interest, or if one does occur, disclosing it

(or any personal interest) to the principal
• making no secret profit or gain from obligations towards the principal.

Example: Confidentiality

A common scenario that could occur is where an agent, eager to sell for
the principal, being asked by a prospective buyer: ‘Why are they selling?’
If the agent answers: ‘The owners are desperate to sell as they are
in financial difficulty and I am sure they will consider any offers,’
or ‘they have bought another property and must move very quickly’,
the agent has released confidential information about their client in an
effort to instil a sense of urgency in the buyer. However, unless they have
been authorised to do so, they have breached client confidentiality. It can
be also argued that they may not have acted in their principal’s best
interests by encouraging someone to place low offers because of the
urgency that has been insinuated. In this example, the fact that the agent
must sell the property to be paid by their agency appears to be more
important, than getting the best result for their principal. The agent
appears to be placing their own interest ahead of the principal’s.

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The agent has a fiduciary relationship with only one party in the transaction, that is,
the client. The agent’s services are hired via the agency agreement. Whilst the agent
does not have a fiduciary responsibility to the customer (buyer who is the third party in
the real estate transaction), the agent has a legal responsibility to be fair and honest
with all parties in a real estate transaction.

1.3 Contractual obligations of an agent
Contractual obligations are placed on the agent because of the agency agreement that
is signed by the principal (client), which authorises the agent to act on the principal’s
behalf. The agency agreement is a contract, and once signed, obliges the agent to
deliver what they have agreed to in the contract. If they do not, they may be liable for
damages to the principal.

Example: Contractual obligations

A management agency agreement between a landlord and the managing
agent is a contract that specifies the services the managing agent will carry
out for the landlord, and what the agency’s fees are for these services.
The agency agreement provides for the managing agent to carry out
periodic inspections of the rental property. For example, the agreement
may stipulate that quarterly inspections will be carried out by the agent.
If the agent fails to carry out these inspections on time over a significant
period, and the property is damaged by the tenant during this time,
the managing agent has neglected their contractual duties. The landlord
may be able to seek compensation from the managing agent.

1.4 Types of real estate licences
The governing legislation for each state stipulates the various licence categories for the
various real estate services being offered. The legislation defines the different categories
of agents, and the services they are licensed to provide.

Resource 1: State’s licence categories, qualifications and
eligibility requirements

Refer to the ‘Toolbox’ in your KapLearn subject room for detailed
information about your state’s licence categories, qualifications and
eligibility requirements.

When using the term ‘agent’ to describe a property operative, that person generally
must hold a licence to practice within the particular property sector in which they
operate.

Most states and territories require an entry-level qualification to carry out the
general functions of an agent involving selling, or leasing and managing property.
The licensee-in-charge/officer in effective control of the agency is responsible for the
conduct of any people they employ to assist them in their agency practice.
The licensee-in-charge of an agency is responsible for closely supervising the actions of
all persons working as a representative of their agency, such as sales representatives
and property managers.

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1.5 Property services offered by agents
Individual agencies may specialise in one particular service, whereas others may provide
a combination dependent on their marketplace.

The range of services in the property industry includes:
• Residential sales: the sale of homes, including houses, units or apartments,

townhouses, and vacant land.
• Buyer’s agency: where the agent acts on behalf of the buyer in the transaction to

locate a property to purchase, and assist in negotiating the purchase price, terms,
and conditions.

• Residential property management: the leasing of homes (houses, units, townhouses)
to a suitable tenant and/or management (leasing and collection of rent,
maintenance, repairs, refurbishment) of the property. The portfolio of properties
managed by an agency is referred to as its rent roll. An extension of this field is
short-term or holiday letting.

• On-site residential property management: the management and leasing of particular
premises, common with holiday complexes, which usually requires conditions such as
maintaining a residence and/or office on site.

• Commercial/retail sales, and management or letting: the sale and/or management
of shops (known as retail), shopping centres (retail), commercially zoned land,
offices, low-rise or high-rise buildings (all commercial) in which business is
conducted. ‘Commercial’ is often used in the industry as an umbrella term for all of
the above, incorporating commercial (e.g. offices), retail (e.g. shopping centres) and
industrial (e.g. factories)

• Industrial sales, and management or letting: the sale and/or management of
property where manufacturing, importing and exporting, repairs, maintenance and
distribution occur, such as industrial sites, factories, warehouses and land zoned for
industry.

• Business sales: the sale of businesses, including for example, hotels and motels.
This is a specialist area of the property industry, and involves the sale of the business,
rather than the property it sits on. The sale of the business usually includes
negotiating the renewal of the lease for the property, where the business
operates from.

• Rural property sales or management: the sale and/or management of land zoned for
rural or pastoral purposes. Stock and station agents serve the agricultural
community. They advise and represent farmers in business transactions pertaining to
livestock, wool, fertilizer farm equipment and rural property. Some stock and station
agents are also real estate agents.

• Strata management: the management of the strata scheme and affairs of the owners
corporation of apartment or unit complexes.

• Community title management: the management of the affairs of the community or
neighbourhood association for community title zoning.

• Auction: A method of selling land, property, stock, crops, goods and chattels in a
public forum where the bidders make competing offers until the item is sold to the
highest bidder or passed in unsold.

• Valuation: in most instances, most agents are not qualified valuers, so the valuation
they offer is only an opinion of market worth or selling price, rather than a legal
valuation. However, some agents hold valuer qualifications and accreditations, and
hence can provide a valuation service that can be upheld in court.

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• Development of land and property: the subdivision of undeveloped land into
serviced blocks. Also, the re-development of property into alternate use, e.g.
wharves into commercial sites, warehouses into apartment living.

• Project management: the planning and co-ordination of property project
developments from acquisition, through the construction to the sale or management
of the completed development, e.g. medium-density townhouse developments,
apartments, office buildings etc.

• Refurbishment, interior design, property staging: design services on a corporate and
private level, such as product hire/advice and presentation techniques to enhance
property presentation.

Income from property services

Income to the agency can be derived from:
• selling fees or commissions, which are usually calculated as a percentage of the

sale price
• auctioneering fees
• valuation fees (if a qualified valuer is employed by the agency)
• management fees for rental properties, which are usually calculated as a

percentage of the weekly rent
• leasing fees, charged when a tenant is to be located for a rental property
• ancillary charges for services such as administration, postage,

attending tribunal hearings
• project management of developments
• provision of services such as staging properties for sale, finance, or insurance
• commissions or fees derived from acting as buyer’s or tenant’s agents,

or advocate agents.

2 Real estate business ownership and
organisational structure

2.2 Types of business entity
There are several options for the structure of a real estate business as a business entity,
such as sole proprietorship, partnership, limited partnership or a proprietary company.
Many agency businesses belong to franchise or marketing groups and may trade under a
business or company name.

Regardless of whether a business decides to operate as a company, partnership, or sole
trader, it will need to comply with the real estate licensing laws in its state or territory,
together with Australian business laws.

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It is wise to liaise with specialists such as solicitors and accountants to ensure the
establishment of compliant operating structures in a real estate business. It is also
prudent that business owners develop a good understanding of the legal requirements
of Australian business laws. Even if they do not have what is known as a ‘company
structure’, as the operator of any type of business, they still have a duty of care to their
employees, clients and customers.

The most common business structures in real estate are shown below.

To find further information on businesses, the Australian Government Business website
is an excellent resource. It is the Federal Government business entry point site,
which also links to all states and territories regarding business structure and legal
requirements.

Resource 2: Key differences between business structures

Read about the key differences between the four most common types of
business structures in Australia on the Australian Government website at:
 Guide to starting a business  2. Make key
decisions Decide on a business structure (viewed 15 February 2021).
Ensure you scroll right to the bottom of the page).

Sole trader or sole proprietorship

An individual proprietorship is the oldest and simplest form of business organisation.
A person who owns their own business is known as a sole trader or proprietor.
Anyone capable of contracting can operate a business as a sole proprietor, subject to
the specific legal requirements established for the type of business (such as state or
territory licensing requirements).

The Australian Taxation Office (ATO) defines a sole trader as an individual who is trading
on their own (irrespective of whether the business has employees working for it or not).
It is the simplest form of business structure. The sole trader has full control of the assets
and business decisions. This structure requires few reporting requirements and as such,
is generally low-cost. The liability lies with the individual, and therefore the business
automatically comes to an end if the individual dies.

The income of the business is treated as the individual’s income, so the individual is
responsible for any tax payable for the business. A sole trader uses their own individual
tax file number when lodging their income tax return that includes the business income.

Partnership

A partnership is defined as an association of two or more persons carrying on a business
with a view to profit. By law, a maximum of 20 parties can join in a business partnership.

As with a sole trader, no new legal entity is created when a partnership is formed.
Each partner is wholly responsible for all of the business’ contracts and dealings
(even debts incurred, or an agreement signed by just one partner).

Partners do not need to register a partnership with any external authority but should
have a written partnership agreement. Such an agreement needs to clearly spell out the
terms of the partnership, thereby decreasing the likelihood of disputes. If there is no
written agreement, the partnership will automatically come to an end if one partner
retires, leaves or dies.

http://www.business.gov.au/

https://www.ato.gov.au/business/starting-your-own-business/before-you-get-started/choosing-your-business-structure/sole-trader/

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If there is no written partnership agreement, partners will not be bound by the law of
partnerships. Additionally, each state and territory has its own Partnership Act,
which contains other provisions.

A partnership has its own tax file number, as it must lodge an annual income tax return
even though the partnership does not pay income tax. Instead, each partner includes
their share of the profit or loss in their individual tax return.

In all states and territories, partners are held personally and collectively responsible for
the actions of the business. In other words, a partnership is not legally a separate entity.

All partners are liable for the debts of the partnership business to the extent of their
personal assets. The general rule for liability applying to partnerships is that all partners
are both jointly and independently liable for the debts and obligations incurred by any
member of the partnership acting in a normal business capacity. This means that should
a creditor bring an action against the partners, and if the assets of the firm are
insufficient to pay the creditor, then each partner will have to contribute from his or her
own personal assets. This arrangement is known as joint unlimited liability. The property
of the partnership (such as the business premises and equipment) is owned jointly by
the partners.

Real estate business partnerships can usually only exist if each of the partners holds a
separate real estate agent’s licence. A partnership cannot share this licence.

Note that partnerships can also be formed between corporations that do carry limited
liability for directors. Many real estate partnerships today exist under this structure and
operate successfully.

Company (corporation)

A company is a separate legal entity quite distinct from the individual members who
form the company. The owners of the company are known as members or shareholders.
It is a complex business structure to start and run, and as such involves higher costs than
other business structures. Because a company is a separate entity, it can legally transact
the same way as an individual. A company can incur debt, sue and be sued.
Companies are managed by company officers, called directors, and company secretaries.

A company:
• can create contracts that are binding
• has the right to sue
• can be sued by a third party
• can own and dispose of property
• can enter into legally binding agreements.

A company, as a legal entity, is separate from its shareholders, and enters into contracts,
owns property and undertakes business dealings by itself. The act of becoming a
company is called a corporation.

Shareholders of the company do not have any liability for debts of the company,
apart from the cost of the shares. This is known as limited liability. This can be
contrasted with partnerships or sole traders which have unlimited liability, and where
the partners or owners may be sued individually for the liabilities of the business.

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There are several different types of company but the one most commonly used as a
business vehicle is a proprietary limited company. It has the words ’Pty Ltd’ after the
name. This type of company does not sell its shares to the public and is limited by
liability. Small business owners often use this type of company structure.
Proprietary companies must have at least one director, and of which, at least one of the
director(s) must ordinarily reside in Australia. Companies are registered through the
Australian Securities and Investment Commission (ASIC). A company needs to register
for an Australian Business Number (ABN) and for a tax file number. It pays income tax on
its profits.

Larger companies that sell shares to the public can still limit their liability and will often
have the abbreviation ’Ltd’ after their name. Larger companies must be registered with
ASIC, and company officeholders have legal …

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